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College Savings 101

Take notes on the pros and cons of 529 plans.

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This story appears in the June 2003 issue of Entrepreneur. Subscribe »

If you're the parent of a child younger than 18, odds are you've noticed a lot of talk about 529 plans lately. Every state now offers at least one of these college savings programs (named for the relevant section of the tax code), and starting last year, the federal government made withdrawals tax-free if the cash is used for higher education. The total value of dollars tucked into 529 accounts has increased tenfold since the end of 2000, and states, mutual fund companies and financial advisors are tripping over themselves to pitch various plans.

Like Roth IRA accounts, money in these state-sponsored plans grows tax-free and can be withdrawn sans tax. Doing Roths one better, 529 contributions also qualify in some cases for state tax breaks.

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